ACCT 210 1st Edition Lecture 4Outline of Last Lecture I. Cost – Volume – Profit (CVP)II. BreakevenIII. Margin of safetyOutline of Current Lecture I. Target incomeII. Income after taxIII. Multi-product CVPIV. Cost – plus pricingCurrent Lecture1. Target incomea. Target income asks question “How much do I have to sell to make $X?”b.TotalRequired sales=¿ costs+ Target income¿Contribution Margin per unit¿ …Required sales=Breakeven+Target incomeContribution margin per unit2. Income after taxa. Part of financial statementb. If…Operating income = $100,000Tax rate = 30%…then…Tax = $30,000…and…Income after tax = $70,000c. If you want to know the operating income after being told income after tax & tax rate…Operatingincome=Income after tax1−tax rate100,000=70,0001−0.703. Multi-product a. Uses sales mix: when company is selling more than productb. Example: Company sells jerseys and shoesc. For every 4 pairs of shoes they sell, they also sell one jacketd. Set x = # of jackets sold and 4x = # of shoes solde. Operating income = (Contribution margin of jerseys * # of jerseys sold) + (CM of shoes * # of shoes sold) – fixed costsor…Operating income = (CM of jerseys * x) + (CM of shoes * 4x) – fixed costs…Solve for x.4. Cost-plus pricinga. Sales price = product cost + markupb.Markup%=Sales
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